The Conundrum of Home Affordability

Follow Me
Latest posts by Wanderer (see all)
Photo by Tierra Mallorca on Unsplash

The world may be distracted by all sorts of geopolitical shenanigans right now (Afghanistan, the resurgence of COVID, etc.), but here in Canada you may be surprised to learn that we are going through something rather interesting right now: a federal election.

While the last American election in 2020 was focused mainly on the government’s pandemic response, the Canadian one is focused on something entirely different: the housing market.

This is not a uniquely Canadian issue, but up here in the frozen North the government reacted to the freefalling economy during the pandemic as many governments did: by dropping interest rates and printing money. This had the effect of pumping stimulus into a freefalling economy and propping up the stock market, which is great. But it also dropped mortgage rates to rock bottom levels, which had the effect of pouring gasoline on a housing market that was already dangerously overheated.

Home prices jumped all over the country, and while this was a windfall for people who already owned homes, they’ve also had the effect of pushing home prices to such unaffordable levels that nobody can afford them anymore.

So in this environment, home affordability is turning into the biggest deciding factor in our election, which is happening in just a few weeks on September 20, and as a result, all major parties are clamoring to show that they can tackle this problem better than anyone else.

Again, this is an issue that’s not uniquely Canadian. Home prices everywhere have inflated due to the stimulus measures implemented by world governments, and those governments are going to have to (or at least attempt to) solve the problem one way or another.

So I thought it would be interesting to look at what our politicians are proposing to fix the looming housing crisis, why I think it’s not going to work, and how I plan to position ourselves to profit off it.

Sound good? Let’s go!

Can Governments Fix High Home Prices?

Now, I don’t pretend to be an expert of economic theory, but I do know a thing or two about money, and regardless of whether you’re talking about houses, apples, or laptops, the price of something is determined by two opposing forces: supply and demand. If a lot people want something and there’s not a lot of that thing available to buy (like, say, iPhones), the price will be high. Conversely, if very few people want something and there’s way too many of them (like, say, Atari 2600 E.T. The Extra Terrestrial cartridges), then the price will be at or near zero.

So in order to lower the price of anything, you generally do one of two things: Increase supply or decrease demand. If we were talking about apples (the fruit, not the company), and for whatever reason each apple was way too expensive, you could either increase supply by, for example, encouraging more farmers to plant apple orchards, or decrease demand by, for example, starting an ad campaign talking about how great oranges are and that oranges are the new apples.

If you were really aggressive, you might do both. This would be result in less people buying apples, and more plentiful apples at the grocery store. At the end of the day, these two forces would result in lower prices. Problem solved.

However, housing is a wholly different beast than apples. For one thing, people generally don’t invest their entire life savings in apples. This makes things, to put it mildly, a tad more complicated.

Imagine for a moment that for whatever reason you, as well as most of your family and friends, invest your entire life savings in apples. And then some politician comes along and promises to bring the price of apples down by 50%. The younger generation that owns zero apples might welcome such a move, but to you and the army of fellow apple-owners, this would look like jack-booted government thugs breaking down your door and stealing your retirement savings. You would protest. You would sue. And you definitely would not vote for such a government.

This is the conundrum that the government finds themselves in. Housing is becoming undeniably unaffordable. Yet too many people have already put most of their life savings into this one asset. Any attempt to actually bring down the prices of this asset would be political suicide.

So what is a politician to do? They can’t actually fix home prices.

So What Can Governments Do?

If we can’t (or rather, won’t) do anything about home prices, the next best thing is to increase home affordability. Now wait, you might think. How is that different? If something is lower priced, it’s automatically more affordable, right?

Absolutely. But remember that homes, unlike apples, aren’t actually purchased with money. Instead, they’re purchased with debt.

So, the rationale goes, rather than reducing home prices and making all these Boomers upset, why don’t we just make debt easier to acquire? Existing home prices don’t collapse, and new buyers are able to afford more on their existing salary.

Everybody wins, right?


Why This Approach Is A Bad Idea

You can probably already guess my major problem with this approach.

If people can’t afford something, the answer is to make that something cheaper and more plentiful, not give them more ways to saddle themselves with debt.

Generally, governments don’t set interest rates, central banks do. But other than interest rates there are a few ways that the government can monkey around with affordability rules. For example, they can reduce the amount of down payment required. They can also increase amortization periods. which determines how long it takes to pay the loan off.

Here’s the problem. None of those approaches makes homes actually cheaper. If anything, they will make homes more expensive, since more people will fall for the siren song of “buy now or buy never.” But what about the people who couldn’t afford to buy under the old rules? Doesn’t it help them?

Yes, it does. It helps them get into more debt.

Think about it. You haven’t increased anyone’s wages, so they have the same amount of money they had before. Yet now under these new rules they can suddenly afford homes. Without any supply side changes, this just increases the price of homes. So people making the exact same amount as before are suddenly able to buy homes that are going up in price. How do they do it? More debt.

The finance world likes to classify debt into two camps: Good debt and Bad debt. Good debt means generally mortgages and student loans. Bad debt means credit cards and gambling debts. Here’s the dirty little secret.

ALL debt is Bad debt.

Any debt, whether it’s a credit card, a line of credit, or a mortgage, always boils down into making an item that costs X into an item that costs X + interest.

If you don’t have the money to buy something, the solution is not to buy it. And if someone is saying that you can still buy it if you sign a complicated stack of legal papers, that someone is trying to trick you into paying way more than the sticker price for the same item. And that’s not paranoia or conspiracy theories talking, that’s how the entire financial industry works.

If governments want to make houses cheaper, then make houses cheaper by building more houses. Making houses more affordable does nothing but put people into more debt.

Own the Banks, Not the Homes

So with governments around the world all trying to do the same thing, which is make houses more affordable without actually making them cheaper, what are we to do?

Well, if you really really really want to buy a house, then I guess it doesn’t matter what I say. You’re going to buy a house.

But you’re going to pay. Maybe not today, maybe not tomorrow, but over the rest of your life, you are going to pay far more than the house is actually worth.

And my plan is to be on the receiving end of that money.

If you follow our Investment Workshop, you already do this because the big financial companies are already part of the index.

If you’re retired and are implementing our Yield Shield, you do this even more because Preferred Shares are heavily bank-oriented (currently paying 5% dividends despite mortgage rates being below 2%), as are dividend stock indexes such as CPD or ZPR (which we own).

Regardless of who wins our election, regardless of which housing policies get implemented, houses won’t get cheaper. That means mortgage debt will increase. That means that banks will make more money, which means our dividends will increase as well.

Every time people pay their mortgag, a fraction of that comes to us.

That’s the beauty of owning debt rather than having debt. Which side would you rather be on?

Hi there. Thanks for stopping by. We use affiliate links to keep this site free, so if you believe in what we're trying to do here, consider supporting us by clicking! Thx ;)

Build a Portfolio Like Ours: Check out our FREE Investment Workshop!

Travel the World: Get covid-19 coverage for only $45.08 USD/month with SafetyWing Nomad Insurance

Multi-currency Travel Card: Get a multi-currency debit card when travelling to minimize forex fees! Read our review here, or Click here to get started!

Travel for Free with Home Exchange: Read Our Review or Click here to get started.

52 thoughts on “The Conundrum of Home Affordability”

  1. I think this is a good investing strategy.

    Bank revenues decrease with lower interest rates, but the mortgage balances increase with the house price increase. So they are a net beneficiary of the expansion of the credit supply.

    I don’t know where home prices will end up. The move in the last year were not normal. I hope things can stabilize at some point in the future.

      1. You have the wrong numbers. I bought a house in Canada before 2016 and my home value has not doubled yet. Far from it !

        Here are the numbers for the Toronto area :

        – Home price index in Toronto (July 2016 vs August 2021) : 61.3%

        – S&P500 (July 2016 vs August 2021) : 134.2%^SP500TR?p=^SP500TR&.tsrc=fin-srch

        With a leverage of 5 to 1 on your brokerage account, you could have made 671% in 5 years !

        The stock market will always do better than real estate in the long run. That is because companies produce goods and services that are useful to society while real estate does nothing except sitting where it is.

        So, Kristy and Bryce are effectively right on this one.

        If you want a proof of that, look no further than Warren Buffet. He became one of the wealthiest person in the world and all his investments are in stocks, except for his own house.

        On the other hand, you see no one in the Fortune 500 list who came from nothing and got to the list by investing solely in real estate.

        Stocks are better than real estate over the long term, there is no question about it.

        However, both assets can be very volatile in the short run (ie. less than 10 years). So, this is very dangerous to put all hopes on one or the other, expecting they will always do better than the other. In particular, stocks can be very volatile and can have serious periods of underperfomance over shorter time frame, like 1 to 5 years.

        Real estate can also be volatile and have periods of underperformance.

        Therefore, leverage is always dangerous, and that apply to stocks as well as real estate.

        There is no way of knowing in advance which one will do better than the other. And for that reason, I think owning your own home is important.

        Buying your house is not a question of making the best investment, but rather a question of securing your fundamental needs of “sheltering”. Once you know you are in security (always have a place to live), then the rest of your investments can be focused on getting the best return possible.

        This is only my opinion. Take all your financial decisions yourself based on your own situation and your own opinion.

        1. Homebuyers put 20% down. Toronto owners are up 300% cash on cash since 2016.

          Most people who buy stocks Don’t buy on margin.

          Kristy, Bryce, and readers who took their advice missed out big time.

          I wish they would admit their fault.

          1. I always understood their story as choosing between a “paid-in-cash house” vs “investing in stocks without margin”. If you use this asumption, then stocks will always end up better.

            Personally, I bought a house with a lower mortgage balance and invested with leverage in stocks. But I understand it’s not a strategy for the faint of heart. And I can tell you, my stocks are doing much better than my house.

            For sure, if you compare two investments using different assumptions and different levels of leverage, you will end up with very different results.

            First, the risk is not the same. Just ask people in the USA who purchased a house in 2005-06 with 20% down and saw a 50% drop in the price of their house. Even if they are able to make the payments, it is still a 150% cash on cash loss !
            Pretty depressing if you ask me …

            Second, even if homebuyers put down 20%, they still have to pay capital + interest to the bank over five years. Since interest rates were higher back then, that’s an additional 25% money that homeowners have to spit on the house on top of the 70% mortgage still payable.
            So if you condider the additional payments and a home price increase of +60%, your 300% gain becomes … only 133% !
            Here is the math :
            – 500K$ house w/ 400K$ mortgage, 100K$ cash down
            – 60% increase is 800K$, for a 300K$ gain
            – Cash payments : 100K$ cash down + 125K$ 5y payments
            – Gain of 300K$ / 225K$ cash = 133% cash on cash return.

            Third, to assume a 300K$ gain for the homeowner, you also have to assume the person sells the house at those elevated prices, which is far from certain any person would do that. In fact, very few people are selling right now – there is almost no home listed for sale. If home prices stabilize -20% lower than actual prices in 2022/23 after the pandemic, then “gone” is their “fictive” gain on their home…

            In conclusion, Kristy and Bryce can be wrong on some things, but they are right on this one : investing in stocks in 2016 was a better decision – stricly financially – than buying a house, even considering a +60% gain on houses.

            But, like I said earlier, this may not be always the case. Personally, I would not take the risk of not owning a home. But I would also not invest in a property for rent using only 20% down. This is a very risky position to be in. Specially if the renters can’t pay their rent because of … Covid, and that you can’t even evict them !

            No chance you can convince me on this one. Stocks are a far better investments than houses.

            1. Never take it as an either or. I’ve made $5 million in real estate since 2016 and I’ve made $3 million in stocks.

              For the vast majority of people, investing in real estate has been way better.

              How about you? What type of absolute returns are you talking about?

              Kristy and Bryce still have a net worth under $2 million. If they bought property they’d be worth way more.

              1. So you’re telling me you have more than $10 million net worth, and you probably are under 30 as well ?

                Are you real or just messing with me ?

  2. “like, say, Atari 2600 E.T. The Extra Terrestrial cartridges”. So happy you didn’t use android phones or you’d have made an enemy here.
    PS:From a truly Apple hater!

  3. I totally agree with you Wanderer, but higher housing prices always end up spilling over to the renters, which is what you guys basically recommend, right?
    Here in Vancouver I’m paying a crazy rent amount, that is more than a mortgage would probably be and that is also because of the housing crisis. It affects everyone, even the ones who do what you guys do (rent).
    Any words for this crowd?

    1. I’m from Ontario but I also looked up the official BC provincial website and they have the same type of maximum allowable rent increase percentages (2021 it was frozen and 2022 they will announce soon – in Ontario it was announced 1.2% for 2022).

      To go over the maximum percentage, the landlord needs an arbitrator to approve but the landlord needs to present very specific reasons (eg significant upgrades to the rental unit that is to the benefit of the tenant and not just the landlord)

      Basically, like Kristy and Bryce say, you have to do the math for rent vs buy. Without even cracking out a calculator, I can tell you that renting in Vancouver or Toronto is way more affordable than buying. Rental increases are quite predictable, although it is true that BC’s increases are generally higher than Ontario’s – you can take a look at the historical averages on
      You have to live somewhere – so your only option is renting or buying. Ultimately, you should do what makes the most economic sense. In my case, in the Greater Toronto Area, renting has made the most sense for me during the past 16 years despite the amazing price appreciation.

      1. In Nova Scotia, I’m reading a story every other week about crazy rent hikes. I don’t know all the details. But there had been previous rental increase freezes/caps – but I guess things are different when the building goes under new ownership, and the owner is able to increase it to market value – but the market has increased dramatically with so many rental units being purchased. Effectively ballooning the market with rental increases. People are literally becoming homeless overnight – and the government isn’t doing much to stop it.

    2. As a fellow renter, I completely agree with you, Jessica. The real problem is governments aren’t interested in fixing the actual supply problems that exist in global metro areas like Toronto, Vancouver, New York, the San Francisco Bay Area, Los Angeles, etc. So they resort to these stupid measures that make things a tiny bit easier in the short term, but do nothing to fix the underlying issues. It’s very frustrating. I wish I had an answer.

    3. I’m actually curious about your thoughts as a renter. Have you purposefully been renting for several years even though you could’ve bought? The conventional wisdom is that everything turns out fine for renters because they save and invest the difference.

      Given it’s been a bull market in stocks as well, have things turned out just fine where rising rent prices is more than made up by your investment and wage gains?



      1. I’ll speak for myself, Sam. At my income level the choice has always been, kill myself to buy a place (even a 1BR condo) at the expense of retirement savings, making me totally dependent on my government pension… and be retirement rich (nice retirement savings plus pension). Since I’ve never been big on owning anyway, renting was ok for me. I have a rent controlled apartment (not in SF proper) and in the 10 years I’ve lived here, the landlord has raised the rent less than the rent control laws allow for. So I admit I am lucky ( but I did ask around before I found this place). What I pay is considered a steal, even for a studio apartment in an older building, but it would still be considered expensive/overpriced in an average cost area.

        At 51, I have fat retirement savings for someone at my income level. I’m considering retiring or semi-retiring early, for a number of different reasons. My pension kicks in in just under 4 years, but will obviously be less than if I kept working those additional years.

    4. Jessica, you just hit the nail on the head, rent increases with inflation, and house prices. Mortgages don’t. At least the last 10 years have proven to be this way… rent on a one bdr is now $1500 /month. My mortgage on a 3bdr house in Victoria, at 2.7% is $1750, but it took 10 years to get here. And I won’t even go into how much my house is up in value…

      1. I don’t know why you are trolling them so hard. Also your story of self -made millions doesnt hold up under scrutiny. I f you have assets equal to 10 million, why are you trolling a random blog at midnight on a Friday? I think you are full of it and just itching to pick a fight

  4. I agree with author , don’t work for the bank paying off the mortgage but own the banks. I own RY, TD, CM, JPM, WFC, KEY and international banks ING, HSBC, BCS and other financials like PRU, SLF, MFC, AFL, Munich RE and Allianz . Love collecting the dividends

  5. The NDP talks about building 500,000 affordable housing units over the next 10 years while also making it more expensive/harder for foreign entities to speculatively purchase residential properties. Yes, as you mention, the NDP is also proposing to permit 30 year amortizations, which just adds more interest to buyers. I’ve read some analysis that this is only half of what is really needed.

    Some of the other parties have also talked about the idea of ‘affordable housing units’ – I just wish they would give us much more specific information. Do they mean condos that people can buy for 5x median regional salary, or apartments that can be rented for 70% current regional market rate. Also, what would this increased supply of affordable housing do to the surrounding market?

    I agree with you that owning ETFs or stocks for which we would benefit from all of these mortgage holders is the way to go; but as Jessica mentions above, if rent prices are also rising to be out of reach of people, something really does need to be done.

    1. It’s interesting that this issue is across the globe as if there exactly the same supply and demand problems in Canada, Australia, New Zealand, the UK – which in housing would seem like a localised issue. You would think for example in Australia we have sooooo much land and a small population that how could there be a supply / demand issue? They build more houses, migration halts during covid, yet the problem persists and is even exacerbated with house prices up 18.5% in 2021. It doesn’t make sense.

      It’s clear that low interest rates and irresponsible lending, coupled with government incentives has encouraged overzealous property investing or to put it more frankly – the renterisation of housing stock. There is now so much money (debt) with property investors that Government answers to them over affordable housing needs and the general view on ‘housing as a human right’ has changed to ‘housing as a commodity.’

      Australia was *stunned* that the labour government lost the last election when they proposed to wind back govt incentives to help housing affordability (thanks boomers 🤬).

      Using Sydney as an example there are graphs that show the price for rentals stay the same while the price of properties skyrocket and the yields plummet to around 1%.

      The level of debt / risk a young person would need to take to buy their own home is unthinkable with a shitty 1-2 bed apartment selling for around $1M. Trust me you do not feel like a millionaire in one of those.

      Now that the major cities have priced out would-be home buying millennials, we are encouraged to ‘rent-vest’ and buy up homes in regional towns – spreading the problem across the entire country.

      All the while 3% of homes in Australia (that’s 9.8M homes) sit unoccupied precisely due to investors buying purely for speculation.

      I have no idea how anyone is going to fix this enormous problem.

      1. Higher housing prices around the world are more likely due to the very loose monetary policies of central banks (ie. low interest rates).

        Combined with additional fiscal policies to increase housing affordability in recent years (in Canada), that pushed the demand for housing higher (more people want to buy a house to get those benefits as well as low interest rates).

        Since the money with which buyers can buy a house is cheaper (cost of interest rate is lower), people have access to borrow more money and therefore bid up prices.

        Since the supply of home did not increased at the same time that central banks lowered interest rates, that means that prices for existing homes would have to move higher.

        In fact, the supply of houses actually did *decreased* during the pandemic, mainly because people didn’t wanted to have visitors in their house that would be potentially infected by the virus.

        In Canada, housing supplies (listed houses for sale) are at record lows. So this pushes buyers to bid up prices even more to get the house they want. There is probably a similar situation in Australia, since people seem to react in similar ways to the pandemic across the globe.

        Also, new built homes can’t increase instantly, since it take maybe 2-3 years between the project, to permitting and construction phase. Therefore, supply of new homes have not adjusted yet to the increase in demand and higher home prices.

        Anyway, I have no idea how this will resolve. Let’s hope some of the price increases will be transitory and that we will move back to more “reasonable” prices. I don’t think these kind of price fluctuations are good for the economy.

        Btw, I know what is the solution to home affordabitliy: central banks could raise interests rate to 10% ! Houses will become very affordable, very quickly (ie. almost instantly !). 😉

        But it is an impracticable solution. This would kill the economy, many people will go bankrupt (boomers + investors) and it is politically intenable for politicians who want to get elected.

        So, we better get used to higher prices and unaffordable housing … at least for now.

        1. I would think house prices will sort themselves out naturally because ultimately, it can’t go that much higher than wages.

          That is, unless there is aggressive foreign capital buying Canadian homes after the pandemic is over. This is what I am expecting to happen in the United States.


          1. “I would think house prices will sort themselves out naturally because ultimately, it can’t go that much higher than wages.”

            I would think also. However, I don’t know how this formula can apply when rates are zero. It’s probably more likely they will go higher, but we can’t exclude the possibility they go lower. In Europe and Japan, they even have negative interest rates, meaning the lender get paid to borrow money. (?!)

            In Canada, we can now have a mortgage for as low as 0.99%. This mean if I sell my house for 1M$, a person could only pay 9 900$ interest per year (825$ per month) (assuming 100% financing – which is not possible).

            If rates go even lower, then there is virtually no limit to the price we can sell houses. 2M$, 3M$, 5M$. The monthly interest charge would still be 0$.

            I know this is theoritical. I’m just reflecting about the meaning of “affordability” and the “house price vs wage” relationship in the context of very low interest rates.

      2. I’ve been living here for 18 months and I am of the opinion that there is no such thing as a property expert in Australia. You cannot be an expert if you’ve only ever experienced rising prices in a 25 year career. Renting is so cheap here and I don’t really get the desperate need everyone (including FIRE enthusiasts) has to be on the property ladder, no matter the cost!

        People are even buying ‘investment properties’ with yields of about 0.5% SMH. My landlady needs to chuck us out and sell up. I am fairly sure my home is negatively geared which means she, and the Australian taxpayer, are subsidising my living costs and I get to live in a good school zone in Melbourne for very little above the average Australian weekly rent (where the house prices are massively above average prices).

    2. I hate the whole conversation around “affordable housing”–at least here in the California where I live. Restrictive land use regulation and building codes are what have made housing in California so expensive in the first place. I hear it’s a similar story in other expensive areas. The government never admits it created the problem in the first place, then it says it will create ‘affordable housing units’. Yet people here in California seem unable to connect the dots as to why housing is so expensive and unaffordable.

  6. The banks collect their capital by paying dividends (one source is preferred stock paying 5%). Then they lend it out as mortgages to consumers paying 2%. How does this make sense. Banks are destroying value and will suffer.

    1. Banks have different layers of lendings and deposits. 2% mortgages will likely be financed through bank deposits, certificates of deposits or Central bank funds (at 0%).

      Higher financing costs like preferred shares or ordinary shares could fund the bank reserves or higher lending facilities like personal loans, auto loans or business loan (at 7% or higher).

      Banks always make a spread (difference between interest revenue and interest cost) in any transaction they do. Or else, they wouldn’t be in business.

      1. Banks do not issue mortgages from deposits. They create mortgages from thin air, insured by taxpayers, backed by the central bank. But do not think banks are immune to stock downturns, e.g. political risk, Trudeau promising to tax banks more. And do not think real estate has no risk either, check what happened during the 90s to real estate, when it was infallible in 1988.

        1. “Banks do not issue mortgages from deposits. They create mortgages from thin air, insured by taxpayers, backed by the central bank.”

          Like I said, they can issue out of central banks funds. But those funds costs between 0% and 0.25%. Whoo, that’s too expensive ! Why would they do that if they can use the money in the bank accounts of their clients and pay 0%. That’s way better ! 😉
          And if people withdraw their money, they can always go back to the central bank and borrow again.

          They can borrow from the central bank. But they always prefer to have deposits from customers in bank accounts. It’s like free money.

          In fact, around 50-60% of their financing come from customer deposits. Interbank lending market (in which central banks take part) is only 5% to 15% of their financing.

          I agree there is risks in real estate.

          My portfolio was 20% ni banks before the pandemic. But it was too much vulnerable to a housing crisis. Now it’s 10% banks and 6% gold.

          This way, I still have profits from mortgage lending, but now I also have some gold in case things get really bad in the real estate market.

          1. Have you ever tried to sell any of your gold ? ( Im assuming shares) Last time I tried to sell some it was a real pain and had all sorts of extra fees associated with itand the cost differential is also a lot more than other investments. It doesn’t appear to me to be the golden bullet ( no pun intended) to avoid extreme market volatility.

            1. The 6% inside my portfolio is in shares (gold mining compagnies).

              I also have some bars I purchased just to see what it’s like (not just the look, but the whole process of buying, storing and selling). When I asked for selling, it was in a small jewelry shop, and the price was 3% under spot. But it may depend on market conditions, I’ve heard at some point last year that gold retail products was so hard to find that retailers were willing to pay over spot.

              Physical gold is very easy to trade, but it’s expensive. It’s almost like exchanging currencies or buying or selling a house.

              The cost is maybe 2-3% to buy. Another 2-3% to sell. And around 0.5% per year for the storage and insurance. So it’s almost as costly as buying a second home or a vacant land. I don’t intent to sell any of it, it’s just sitting there. I can sell whenever I want if I want to.

              If I would buy physical gold for my portfolio, I would do it through an ETF. This is the most inexpensive way to buy and sell (same fees as other ETF). The annual expense ratio are around 0.5%, which is reasonnable. The two main ETF are GLD (SPDR Gold shares) and PHYS (Sprott Physical Gold Trust).

              For the moment, I’ve decided to invest mainly in gold mining companies. They are very cheap. They have amongst the strongest balance sheets in all the stock market (ie. no debt and plenty of cash). They pay good dividends (paid to wait). And they have no storage fees (since their gold is still in their natural storage location). 🙂

              However, they are very volatile. If gold is volatile, gold mining companies are even more volatile. Investors seeking stability will probably favor owning gold itself instead of gold mining companies.

              The companies I invested in are the main ones : Barrick Gold, Newmont, Franco-Nevada, Wheaton Precious Metals and Agnico-Eagle Mines. They are all in the TSX60, except for Newmont that is in the S&P500.

              The goal of gold is not to protect from market volatility, but rather to insure the wealth you have today will still have value 30-40 years from now, or in the eventuality of an catastrophic event, like a war, a housing crash, a financial collapse or a currency crisis.

              Since gold is very volatile, one way to profit from it is through portfolio allocation. You can target a 5% allocation, for example. If it exceed 10%, then you sell some to buy something else. If it drops to 3%, you buy more.
              Since gold will never go to zero (absolute mathematical impossibility), this strategy will always work.

              Physical gold will only be necessary in case of a war (need to escape the country and having something of value with you) or in case the government froze bank accounts to prevent a monetary crisis (need to have something to trade during that time). None of that is imminent. ETF will do a better the job before we get to that point.

              Like you said, gold is not a golden bullet to riches. It doesn’t replace sound investing. But it’s a good alternative to cash, negative (real) yielding bonds, and overvalued stocks and real estate.

              It’s more like a “wealth insurance”. You buy it.. in hope you never have to use it.

  7. I’m an owner of the banks and real estate. I reason why one can’t do both.

    As an American, I’m amazed at how much more expensive Canadian real estate is. If U.S. home prices trade at the same multiple as Canadian home prices, we’d see another 70% increase in our median home price!

    I hope one day, foreign investors see America as positively as they see Canada. America has a lot of opportunity too!


    1. You have no idea what you’re wishing for, Sam.

      Speaking as someone who did own real estate in Canada till 2017, who currently rents, and has a nice juicy portfolio of ETFs that spunks out yummy divvies and capital growth, what is going on here in Canada and elsewhere regarding real estate is not healthy.

      The problem is that people are buying houses here like you and I buy underwear. Lots and lots of underwear. With leverage. When interest rates are next to zero and less than inflation and average mortgage terms are only 5 years. When, not if, interest rates rise, all those stooges who need to renew their mortgage term are going to get whiplash.

      As Wanderer said, I’ll be sitting on the opposite end of that trade on a massive pile of profit.

      1. You’re right that I usually don’t have any idea what I’m talking about, in this case as well.

        But I do know that my real estate portfolio has risen a lot over the years, and so have rents. Meanwhile, mortgage rates have dropped.

        The growth and profitability spread has been amazing. Given most people on real estate, rising prices will help most people. And if families on multiple properties, they can help their children lower the cost of living as well.

        How do you plan to profit sitting on the sidelines? Are you mostly in cash? I do have a post about cash today on Financial Samurai.

        If you look at how home prices have grown since 2017 when you sold, it looks like prices are way up in Canada no? What did you do with the proceeds?


        1. I bought index ETFs. Along with the money I threw in from working, I doubled my portfolio size and I’m retired now for the last year and a bit. Doubling in less than 5 years works for me.

    2. FS, yes opportunities no doubt, but I’d say the main reason 98% of the world sees Canada as a better place to live comes down to one thing: HEALTHCARE !

      1. Uh…healthcare in Canada sucks. Have you tried using it since Covid hit? I have. It’s a nightmare. And what I needed was minor. You should have seen what other people were waiting in line for at the emergency room. And for specialist appointments. Horrific!

        Outside of a very few medical practitioners who have kept their doors open and are willing to see patients face to face, the medical system here is mostly shut down. Telehealth is a joke. GPs should be flogged for refusing to see patients face to face. You can see they’re mostly in it for the money, not to help those who are at their most vulnerable.

  8. “All debt is bad debt.”

    I used to think this way too, but the issue is that monetary policy from the central banks world wide have punished savers / creditors and rewarded debtors. The only way to survive and thrive is to own assets.

    When inflation is 3-10% per year depending on who you believe, all fiat currencies and their purchasing power are depreciating. If your cost of capital / interest rate is 3-5% with a good credit score, that is a low hurdle rate / ROI on an investment.

    Not saying other ppl should do this, but I’ve borrowed money to invest on dips and it has worked out very well so far. Borrow cheap money to buy appreciating and scarce assets while repaying it in an increasingly depreciating currency over time. As long as your cash flow can service the payments, there is no danger of getting margin called.

    This is how the most savvy investors got rich in Germany during the (hyper)inflationary periods of the Weimar. Borrow money to buy real assets and repay in a currency that is losing its value. In some ways, this is what the Boomers have done with real estate. A mortgage is just a bet on a hard asset with 10 to 1 leverage assuming a 10% down payment. Not all will have the stomach for the volatility but to each their own. Good luck to all.

  9. Singapore’s HDB public housing approach seems to be pretty smart. The country has very high median incomes and a population density 4x that of Sydney, and yet the average 3 bedroom HDB apartment a few minutes walk from an MRT station is just SGD 500k (or substantially cheaper than that if you’re happy with an older place/a bit further out).

    It also serves as a warning for anyone in a highly affluent and growing city who thinks high property prices are temporary. Even with the world’s best public housing competing on the supply side, the average price across all of Singapore is 1.5m for a non HDB 3 bedroom condo, and 4m+ for landed property, which you can 1.5-2x for properties in the better spots.

    Oh forgot to mention that HDB public housing was only possible because the Singaporean government gave itself the power to forcibly acquire land well below market value during the 60’s… good luck replicating that today in Aus/Canada… 🙂

  10. I live in Toronto and know many young people (co-workers and family members) who are gainfully employed in professional jobs making $70,000+, but have been completely locked out of the housing market because of high prices. I think there is something very wrong with society when home ownership is so out of reach for hard working young people. It could really hamper an individual’s drive and motivation.

    I remember having to “stretch” to buy my first place, but nowadays there is no amount of “stretching” that would make any financial sense. The market is wildly distorted and Canadian politicians don’t have the courage to enact sensible policies that would help affordability. They actually want to pour more fuel on the fire! It is just too exasperating. I would say this can’t end well, but the market has been going up for years.

    1. I’m sure some will call me a conspiracy kook, but I think there are lots of nefarious ulterior motives behind the artificially high cost of housing in many developed countries, especially global metro areas. It smacks of the ‘Hunger Games’.

  11. “But remember that homes, unlike apples, aren’t actually purchased with money. Instead, they’re purchased with debt.”

    Clearly you have never lived in Vancouver. Here people buy homes with large duffle bags full of cash… 😉

  12. I had no idea that the Canadian election was coming up. Love hearing about the political process at other countries so it will be very fascinating on what happens.

    Housing prices is definitely a huge talking point between many people across the globe, especially during the pandemic. When will the buying frenzy stop? We will never know.

  13. For Canada at least, I’m not sure of another way to shelter hundreds of thousands (or millions) of capital gains.
    Also, I think artificially low interest rates have a contributing factor.
    I think wanderer’s supply and demand still applies; I can’t see housing becoming affordable without Boomer’s realestate value decreasing.

  14. Is it safe to say you guys are still negative on housing 2015 I’m recommending the house?

    Why would housing affordability be a problem solution stock market?

  15. One part of this issue is that families dream of buying a three bedroom, two bath single family house on a large lot. The ‘burbs are a 1950’s dream that has to end in this century.

    Greenspace and farmland has to be protected or we will lose the ability to feed ourselves. Sadly, Canadian cities are built over the best farmland in the country.

    We don’t need more highways and commuters, we need innovative innercity building projects with public transit, that many thousands of people will be proud to live in. That is a big order for any government.

  16. I am retired, not FIRE movement but I would have joined it if I knew about it earlier in life. I had bought a house with my spouse in SF Bay Area when we just got married. We traded up once. Now, it is paid off. It is worth close to $2M now. Our initial downpayment is about $60,000 in 1984. S&P was 164 then. Now, S&P is 4,455. So, S&P went up 27X. Just the downpayment would have returned $1.6M (not considering taxation). The price of 2nd home is $400K. So, if every mortgage principal and interest were ploughed into S&P investment, the invested amount would be an additional $640K (approximately and taxation not considered) over the life of the mortgage. I would have been a much richer person. The return from stock is much higher in the long run even if you don’t leverage from the start. So, invest as much as you can early in life and utilize all tax-deferred or tax-free provisions to the max. Stock will give you a good return no matter where you reside. Investing in a real property will depend on where the property is located. In the short run, any investment can be good or bad but invest for the long term.

  17. I know you focus on the financial reasoning the most (duh, it’s a FIRE blog haha) but you also seem to touch on the downstream societal effects of how we treat housing. Big plus on that! I really shudder to think about housing affordability for future generations who don’t already have the assets to even qualify for debt. Or immigrants who come to the country without much money. How will they afford housing? Should we just tell them “Sorry, should have been born 30 years earlier and gotten on the property ladder back then”? It just seems like we’re stuck in a housing system designed to choke each other over generations and that’s it’s a lie to tell people that they can make it just by following conventional rules. Affordable housing or highly appreciating asset? It’s a contradiction to be both at once but neither Canada nor the US care to admit that.

Leave a Reply

Your email address will not be published. Required fields are marked *

Social Media Auto Publish Powered By :